If you’re moving or have already moved abroad from the UK, tax is likely one of the key topics you have questions about. Will I be taxed in the UK? Will I be taxed in the new country I've chosen to live in? Or, worst of all, will I have to pay tax in both countries?
The answer, in short: under UK rules, you may be taxed on your UK income by both the UK and by your new home country. However, you may not have to pay twice if the country has what’s known as a ‘double taxation agreement’ with the UK.
But while these agreements might protect you from another tax bill, they won’t stop you from having to pay an additional cost for sending money across borders. That’s why it’s super important to choose the right money transfer provider for the job, as we explain in more detail below.
Why this matters now: UK reforms to non-dom policies
Cross-border taxes have been a considerable feature of the news cycle this year.
In April, the UK stripped back its non-dom tax regime – the rules that allow UK residents with permanent homes overseas to avoid paying UK tax on foreign income if it isn’t brought back into the UK – for a new residence-based system.
However, the government has assured the British public that changes to the non-dom tax regime won’t affect double-taxation agreements, which will still hold with a number of other countries.
What is a double taxation agreement?
A double taxation agreement is a treaty between the UK and another country that prevents people from being taxed twice on the same income. Some of the countries with which the UK has such an agreement (and which are popular with UK expats) are as follows:
- Spain
- France
- Portugal
- Australia
- US
- Canada
For the full list of countries where a double taxation agreement is in place, check the HMRC website, which also gives info about what (and who) will be taxed across these countries.
How do UK double taxation agreements work for UK expats?
Depending on the agreement, you’ll be able to apply for partial or full relief before you have been taxed or a refund after you have been taxed. However, if the tax rates in the two countries are different you will pay the higher rate of tax.
Note that the specific nature of the income that is and isn’t taxed may depend on the agreement, so it’s important to check the rules via HMRC’s website.
However, some of the types of income that can be claimed for may include:
- Pensions
- Salaries/wages
- Bank interest
- Dividends (though special rules apply on this)
You should also note that double taxation agreements don’t usually apply to taxes on gains from selling UK property.
How to find out if a double taxation agreement applies to you
If you’re an expat, follow the instructions below
- Check to see if your chosen country has a double taxation agreement.
- Find out how different things like pensions, employment and investments are treated, as each income type might be taxed differently.
- Claim relief if you are eligible: in many cases, you’ll need to file forms with HMRC or your local tax authority to ensure that you’re only taxed once.
Tax can be complicated, so it may make sense to speak to an advisor to get more information on how you will be taxed and if you can get full or partial tax relief.
Double taxation agreements and moving money across borders
For expats, double taxation agreements answer the question of where they pay tax on income they receive, but they don’t answer another extremely important one: how much does it cost to actually transfer money from one country to another?
If you’re an expat or in the process of becoming one, chances are you will be sending money across borders regularly, whether that's to move pensions or savings to a new country, or sending funds back to family in the UK.
Even if you aren’t being taxed twice, sending money to another country can come with high bank fees and additional costs for FX conversion if exchange rates aren’t favourable. Over time, these costs build up, until they are effectively a hidden tax of living abroad.
Thankfully, a number of specialist money transfer providers exist who can reduce the cost of sending money abroad and make the whole process more seamless – whether you are looking to transfer to your destination country to make crucial purchases or sending money to loved ones back home.
In just a few seconds, we can compare money transfer companies for transfers to your chosen country, helping you snag the best deal. Compare providers today.
